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AS I SEE IT

Posted 8/19/15 (Wed)

By Neal A. ShipmanFarmer Editor

The drop in oil prices has definitely sent a shock wave across North Dakota’s oil patch. And the resulting downturn in the economy, along with the associated layoffs in the oil industry, has many people worried. They are worried that the low oil prices and the slowdown in drilling is the beginning of the end.
While there is reason to be concerned about what is happening in the oilfield, there is no reason to be alarmed. And that is the message that many people associated with the oil industry and the North Dakota Oil and Gas Division are telling folks.
Yes, the industry has slowed down. Yes, some people have lost their jobs. And yes, the frantic growth that everyone saw when oil prices were above $100 per barrel is gone.
But that does not mean that the oil industry is still not viable in North Dakota’s oil patch. And it does not mean that growth in places like Watford City and other communities, that are in the center of the oil development, isn’t going to continue.
So the question that needs to be asked is, “Are you looking at your glass as being half full or half empty?”
When oil prices were $100 a barrel, everyone was jubilant and optimism ran supreme. Now that oil prices are in the lower $40 a barrel price range, some are saying that the sky is falling. But for those that have gone through the oil booms and busts of western North Dakota in the past, some things are a given. One, oil prices above $100 are not sustainable. And prices below $40 aren’t sustainable either. What is needed is the middle range of oil prices. And those prices will return - maybe not this year or next. But they will return.
Which is why people need to take a deep breath and keep things in perspective.
While our glass was more than overflowing when oil prices were high and the state was begging workers to come to North Dakota, it is safe to say that “our glass is now half full and on it’s way back to being at the brim.”
That optimism is particularly true for Watford City and McKenzie County, which is at the epicenter of oil and gas development.
While OPEC has done its best to drive the shale producers into bankruptcy with record oil production, they haven’t been able to do so. U.S. oil companies have reacted to the lower oil prices by driving down their costs, which enables them to still produce oil profitably. For example in McKenzie County, which currently had 26 of the state’s 74 drilling rigs operating in August of 2015, the break-even prices for well profitability is now at $27 a barrel. Which means that even in light of oil prices, oil companies in McKenzie County are still making money.
Plus, with the state having over 900 wells that have been drilled, but not fracked, and more wells being drilled every day, oil and gas production in the state is still increasing. The Bakken/Three Forks formations are among the largest oil reserves in the United States. And that oil isn’t going away.
So in answer to the question, “Is our glass half full or half empty?” - the obvious answer is that it is half full. And it is beginning to fill again.